Thursday, 29 June 2017

The Fairest Way to Pay for Financial Advice

Most people do not give themselves the title of investment professional. You’re busy working and spending time with your family, so many happily put the task of managing wealth into the hands of a seasoned, friendly adviser.

Whilst this is a logical choice, perhaps not every professional adviser is worth the price a client pays.

That’s because it’s common to see a percentage-based fee model among investment advisers and financial planners.  By common, I mean this is the way that 95% of advisers charge!

My opinion is that fixed fees are actually the fairest way to pay for professional advice.

If you’re wondering why fixed fees are in your best interest, this articles breaks down the four key issues with percentage fees and how fixed fee provide a fairer option.

Problem 1: The Cost

On the surface, a 1% fee sounds tiny when the opportunity for growth on an investment is substantial.  Unfortunately, that tiny percentage takes a massive chunk out of the total return over time (that’s because the power of compounding works against you).

Let’s look at the numbers:

If you have £250,000 invested in a portfolio that grows at a consistent 7% over a 10 year period, the value of your account would be £445,220 after a decade.

But, if your adviser charges a 1% fee of your account value from day one (so, £2,500 in year 1), your account balance is £46,000 less!  The charge is 1%, plus 7% annual growth down the plughole over the 10 years.

In contrast, by choosing a fixed flat fee of £125 per month, you would save over £28,000 in fees alone!

So although it’s ‘just’ 1%, that constant drip, drip, drip soon becomes serious money, money that could be used for funding your retirement or other financial goals.

Overlooking a percentage fee is common, especially when a portfolio was set up years ago and hasn’t been touched much since. To avoid losing out on investment returns, be sure to spot check your investments and pensions to ensure there is no percentage coming off the top, or ask your adviser to switch to a flat fee model instead.

Problem 2: Conflict of Interest

A huge, but less noticeable problem than percentage fees eating away at returns is an adviser’s conflict of interest under this model.

Someone who is being paid by a percentage of your portfolio’s value over time, loses their income or fees when you take money out of your portfolio.

If there is a need to withdraw a portion of the account for a child’s education expenses, retirement, or another big purchase, you can understand why advisers may well be hesitant to act in the client’s best interest for fear of reducing their own revenue.

A flat fee takes away the potential for this conflict of interest altogether. The only income is from the client fee – no rebates or commissions – which means we’re always doing what’s best for you. That includes taking money out of a portfolio to help fund your goals.

Problem 3: Cross-Subsidy

The percentage fee also poses the unique problem of paying for cross-subsidy, which means that clients who have more money subsidise those who have less. An investor with a £1M portfolio pays 1%, or £10,000, in fees each year, while someone with £100,000 pays £1,000 for the year. That may not seem like a glaring issue, but in reality, if both clients receive the same level of service, it’s clearly cross-subsidy.

Paying a flat fee for advice means clients with more assets are not paying for someone else’s planning.

We understand how hard you have worked for your money, and it shouldn’t be used to subsidise the cost of advice given to others.

Problem 4: Contingent Charging

Charging a percentage fee on invested assets is a clear issue for clients who don’t have assets to invest. Without a portfolio to manage, most advisers can’t charge a fee and subsequently earn an income. This often means that other financial priorities, like paying down debt or saving in an emergency fund, may not be suggested, even if they are in the best interest of the client.

Warren Buffett once said, “Never ask a barber if you need a haircut”. That rings true with contingent charging investment managers and financial advisers, too!

Paying a flat fee each month means we provide guidance on all aspects of your financial planning needs, whether there are assets to invest or not.

The percentage fee model is the most common in the financial services, but at Jones Hill, we stand firm in our dedication to clients’ needs by going against the grain.

Our flat fee structure avoids the pitfalls that percentage fees are bound to create, and our relationship with you as a client is stronger for it.

If you’re ready to move away from the percentage based charging model and start receiving unbiased, impartial and expert advice, get in touch with us today.

As an exclusive offer for friends, family, and colleagues of our valued clients, we provide a second opinion service to help the ones you care about understand their financial situations better. We’re happy to offer our expert guidance in the areas of investment management and financial planning to those looking for a different, beneficial approach. If you know someone who would benefit from this second opinion service, feel free to pass this information on to them directly.

Thursday, 15 June 2017

Why Cash Isn’t Always King

Investing is by far the most attractive part of financial planning for most people, but it comes with risks that can be difficult to understand and ultimately work through. When investing feels like it is too much, holding cash is the next best logical move. Not many would define having too much cash on hand as a bad thing, but there are times when cash isn’t king - and can actually stop you reaching your financial objectives.

Finding the right balance between setting money aside for a rainy day and investing is an important part of the financial planning process. If you’re worried you have too much or too little cash on your hands, here’s how you get the right balance between cash and investments.

Understanding Asset Classes

Balancing your investment ‘buckets’ starts with understanding asset classes and the purpose each of them serves. Savings held in a bank account, or cash, is intended for short-term needs, like emergencies or planned expenses that exceed everyday expenditures. Investments, on the other hand, are meant to help you achieve long-term goals, like retirement, saving for a child’s education, or buying a home in the future.

Figuring out the balance between how much cash to have on hand for short-term needs versus how much to invest for your future self is important, but the reality is that most of us get it wrong. According to a report from a leading pension provider, savers across the UK have lost out on more than £100bn over the last 10 years, chiefly because they had the wrong balance between cash and investments. 

The reason for such dramatic differences between cash and investments is the power of inflation. Short-term savings don’t generate enough interest over time to keep up with a rising inflation rate, making the purchasing power of that money weak. Investing offers potentially higher returns for the long-term, helping balance out the eroding effects of inflation on cash.

With Inflation at 2.9%, there is a real cost to keeping more than you need in cash. Over the last 5 years alone, the average saver has lost over 10% of their purchasing power by keeping funds in cash. 

The Right Mix

Everyone has a unique financial plan based on their required expenses, goals, and the income used to make it all happen. That means there is no magic amount that should be applied to everyone when it comes to the balance between cash and investing. However, a good gauge for finding the right amount of cash versus investment starts with evaluating your expenses.

For most of us, an amount equal to six months of basic expenses (not income) is a safe bet for an emergency fund. Set aside in an easily accessible account as it will allow you to cover unexpected expenses without depleting investments or turning to debt.

Once the emergency fund bucket is full, a shift toward investments should take place. In an ideal world, investments represent money that is not needed for at least three years, since the short-term is ultimately unknowable. If you’re worried about needing that cash before then, it’s a better choice to put it in savings.

Getting the Right Help

Financial plans change over time and the balance between investments and savings is a large part of that. An experienced financial planner not only helps provide clarity around how much you should hold in savings and how much you should invest, but also lends a hand in making sure your decisions are based on logic, not emotion.

Investments carry risk, but trying to time the market based on today’s news or predictions for the future never works in your favour. Financial planners offer unbiased, rational guidance on staying the course with an investment and savings mix, all in an effort to help you reach your short- and long-term financial goals.

Thinking about the balance between cash on hand and investments? Get in touch with us today to see if you’re on the right track. Our friendly, expert advisors help you quantify your goals and create a plan that meets your needs both now and in the future.

If you think a friend, colleague, or family member would benefit from down to earth, professional advice, please feel free to pass along this article to them.

Thursday, 1 June 2017

How to Invest Like a Professional

Investing is one of the most attractive aspects of financial planning, but it brings with it more anxiety than some can handle. Over time, markets move upward, helping most of us generate wealth for the long term. It’s when the markets go down that panic sets in and decisions based on that emotion end up eating away at our nest egg.

Professionals who have been around the investing block a few times know what it takes to keep a level head when it comes to their money. Here’s how you can invest like a professional in an uncertain environment.

Understand Your Why

Just because investments offer the potential for higher returns, jumping head first into the stock market isn’t wise when there is no clear reasoning behind it. Before you start down the investment path, know your specific why.

Planning for a long retirement, wanting to accumulate wealth as a legacy plan for your spouse or children, or preparing for a major purchase in the future are all viable reasons to invest your money. The most successful investors have a clear purpose for each of their investment accounts which reminds them why they invested in the first place.

Without a clear goal, it’s nearly impossible to stick with an investment of any kind long enough to reap the rewards. You’ll end up focusing on arbitrary factors, like a stock price or day-to-day ups and down, which may lead to emotional decisions that lower returns over time. To invest like a pro, hone in on how a specific investment is helping you reach your stated goals.

Be Disciplined

Successful investors don’t have a crystal ball that gives them the upper hand in the market. They simply follow proven disciplines when it comes to their invested money, like automating the process. Getting in the habit of paying yourself first through automatic additions makes investing a painless endeavor void of emotion, no matter how good or bad the market is performing at the time.

In addition to automating investments, the pros also maintain discipline in terms of timing. No, that doesn’t mean they time the market – it means they focus on time in the markets! History shows us that attempting to time when investments are bought and sold is a losing battle. The impact of missing the ten best days in the market from 1986 to 2016 cost investors more than £850,000. That’s the difference between surpassing your financial goals and falling well short.

Instead of tinkering with investments to try and time market movements, successful investors stay the course for the long term. It isn’t always easy with the noise of the media and uncertainty that plagues the political and economic landscapes, but moving in and out of the market simply does not pay off. Where possible, try to take emotion out of the equation. For example, all of our clients benefit from automatic rebalancing, that’s buying low and selling high. Whilst it might seem counterintuitive to buy an investment after it's fallen in value, when you think about it it really does make sense - why wouldn’t you buy in a Sale?

Ask for Help

Most successful investors don’t go it alone. Instead, they work with expert advisors who understand not only the principles of investing but also the specific goals they are trying to reach. Advisers are like coaches, talking you out of making decisions based on emotion and fear. We can keep you focused on the task at hand which is not brag-worthy returns but rather accomplishing what you set out to achieve.

Advisers act as a barrier between investors and their biggest money mistakes. We help you create a strong financial plan that includes an investment strategy specific to your needs and wants, and a legacy plan to seamlessly pass on what’s remaining for the next generation. In the same way that successful athletes recognise the importance of having a coach on their team - so should successful investors!

If you’re ready to invest like a professional, get in touch with us today. We offer expert, friendly advice on how to create your financial plan and the investment strategies to help you reach your goals without the noise of emotions getting in the way.

If you think a friend, colleague, or family member would benefit from down to earth, professional advice, please feel free to pass along this article to them.

Wednesday, 17 May 2017

Avoiding Costly Estate Planning Mistakes

No one wants to think about death and dying. It is depressing and some view it as unnecessary, especially when there is so much life left to live. But facing the reality of the inevitable is a big part of the financial planning process. Making sure your wealth is protected when you are no longer around ensures you leave the kind of legacy you want.

Basic estate planning documents combined with an understanding of what’s needed and what can be left off the table helps you do just that. If you’re one of the many concerned about the financial legacy you’ll leave behind, here are a few things to consider.

Having a Will

One of the most common estate planning tools is a will, but too often people overlook its importance. That’s because they don’t understand what it is, how it works, or what happens when a will isn’t in place when it’s most needed. First, let’s breakdown the basics.

A will is a document that accomplishes the following:

 ► Naming executors: the people who look after your finances when you die

 ► Distributing the estate: the process by which assets, like property, business interests, pensions, investments, and life insurance, are transferred to loved ones in the way you want

 ► Providing for minor children: naming a guardian for children under 18 and how assets should be used to provide for them

 ► Reducing taxes: transferring assets in a way that mitigates inheritance tax

Without a will, intestate rules kick in which means you and your loved ones lose control over how assets are transferred. This often means the Government ends up as your biggest beneficiary, not your children or partner, causing financial turmoil on top of what is already an emotional time.

Avoiding these frustrations is simple when a will is in place. A handful of organisations offer will writing to certain individuals, including trade unions and employers, charities, and some insurance companies as part of a home or car policy.

However, if you have a complicated situation, it is recommended that a will is prepared by a professional, given that small errors can have a big impact on your financial legacy. We can provide an introduction to a solicitor or professional will writer should you need it.

Creating a Power of Attorney

In addition to a will, a power of attorney is another important piece of the estate planning puzzle. This document protects you and your loved ones in the event you are unable to make decisions for yourself due to mental incapacity. Statistics show that upwards of 1 million people in the UK will suffer from dementia by the year 2025, making it necessary to protect your financial situation from this all too common plight.

With a power of attorney document, you can:

 ► Choose one or more people to make decisions about money and property

 ► Decide who will make decisions about your welfare, like medical care, transitioning to a care home, and allowing certain treatments

Without the appropriate power of attorney in place, your finances can quickly become complicated – and you no longer have the mental capacity to do anything about it. Instead of a trusted family member or a professional attorney making decisions for you, the court decides the care you should receive and how your financial matters should be managed.

To avoid involving the court, create a power of attorney well in advance of a mental capacity. Similar to a will, this can be done through various organisations at little to no cost, or through a professional will writer, to whom we can offer an introduction.

Planning Tips for Everyone

Avoiding unnecessary and often costly complications when a loved one passes away or becomes unable to make decisions on their own starts with an open and honest discussion. Yes, it may be unpleasant, but in the end, it is a necessary step in protecting your financial legacy.

Take the time to understand the assets you have, talk about how you want those distributed, and decide who will look after your financial matters should something happen. Not only does this keep your private financial situation out of the court, it also avoids painful family conflicts and ensures your loved ones are adequately taken care of.

If you’re ready to take the next step in financial planning by understanding how estate documents like a will and power of attorney work to protect you and your loved ones, get in touch with us today. We offer expert advice on how to structure your plan in a way that avoids common financial pitfalls, and we can provide introductions to professional will writers and solicitors should you need it.

If you think a friend, colleague, or family member would benefit from down to earth, friendly advice, please feel free to pass along this article to them.

Thursday, 4 May 2017

Handling Volatility in an Uncertain World

Several shifts are taking place in the economic and political landscape throughout the world, and the UK is no exception. The recent announcement of a General Election set for early June has caused quite a stir in the media which is difficult to ignore. If you are concerned about how recent events may affect their financial life, you have plenty of company.

It is easy to get caught up in the hype of bad news and make sweeping assumptions about what’s on the horizon. Understanding how to stay focused, even through the noise, plays a big part in reaching your financial objectives. If you’re nervous about the next stock market decline, or you simply want some peace of mind surrounding your financial plan, we’ve got you covered .

Avoiding the Media Frenzy

Nearly all talking heads in the media took to the news of the abrupt General Election in the same way – painting a gloomy picture for the stock market. While it is true that markets don’t like uncertainty in the political environment, we can look to history to understand why it may not be as dismal as the media makes it seem.

Since 1966, despite the many changes of power, pre-election stock market performance has been positive when an election was easy to call.
But it is easy to forget that the market ebbs and flows constantly, election or no election. When you step back and get further away from the day-to-day viewpoint of market volatility, it is easy to see that markets rise over the long term, despite how much negative news coverage there may be right now.

Remember, when the FTSE 100 opened in 1984, it opened at 1,000 points. Despite all the trauma along the way, Black Monday, 9/11, the great financial crisis, the FTSE stands at 7,269 today - that’s a sevenfold increase!

Staying in Control

Experts across the globe predicted that a deep recession would begin the moment Brexit took place. The same was said about Trump’s victory in the US. Not surprisingly, those things did not come full circle. That’s because no one can say with 100% certainty - much less in fact - how much a market will decline due to a world event, or how much it will rise in less uncertain times.

We can’t control what the media says, or how the markets will react to new political or economic news. We can, though, control how we structure a financial plan and work toward long-term goals. Instead of focusing on the potential of short-term volatility, remember the big picture. Past events show that whatever happens in the next three months will have little to no impact on a retirement that is 30 years away!

I’m convinced that in the future, this will have to be repeated on all media bulletins, in the same way that ‘past performance is no guide to future performance’ is mandatory on all fund advertisement. Until then, we’ll just have to apply common sense.

Taking out the Emotion

It is difficult to keep your eye on the long-term prize when the future isn’t all that clear. We are all emotionally attached to our money, but emotion doesn’t do anyone any good in times like these. There is an old saying, you never lose if you never sell, and that still rings true today. Warren Buffett is the perfect example of that theory in practice.

When the stock market crashed in 1987, known as Black Monday, the share price of Berkshire fell 18% in a single day. Buffet’s fortune was dented by an estimated $347 million, but because he didn’t act on emotion and sell off his shares, he lost nothing! Those who run from market volatility end up losing big over time, making it important to stay the course even when things seem to be on shaky ground.

One of the best ways to keep calm and carry on during times of market volatility is to work with an adviser who can provide a worst case or major loss scenario based on your investments and long-term goals. We stress-test your financial plan to make sure it is ready for declining market conditions, and any other bumps that may come along the way.

Keeping your sanity when markets are up and down requires you to keep a long-term perspective of your financial goals. If you need peace of mind during these uncertain times and want an expert to stress test your portfolio and financial plan, come in a speak with us today.

If you haven’t yet created a plan for your financial future, get in touch so that we can provide the expert guidance you need.

If you think a friend, colleague, or family member would benefit from down to earth, friendly advice, please feel free to pass along this article to them.


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